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SURPRISE IN THE BLACK SEA

Discovery of the Sakarya gas field in the Black Sea can change Turkey's position in the global energy market

Author:

01.09.2020

Where there's a will, there's a way… Turkey's efforts to reduce its dependence on the import of energy resources by extracting them on its own have become successful.

In a televised address to the nation on August 21, President Recep Tayyip Erdogan announced the discovery of the largest natural gas field in the country's history in the Black Sea. The field called Sakarya is 2,100 meters deep with reserves estimated at more than 300 billion cubic meters.

The discovery is truly historical for Turkey, since it can significantly change the balance of power in the Turkish gas market, saving billions of dollars annually on energy imports. “I believe that from now on Turkey will look to the future with greater confidence,” Erdogan said.

In addition, Turkish authorities have already announced their intention to become a net exporter of energy resources, which means a new actor may appear on the global gas market in the future. In the meantime, the discovery may become an important advantage for Turkey in negotiations on prices for imported gas with existing suppliers.

 

When hard work gives back…

President Ilham Aliyev congratulated his Turkish counterpart, noting that the discovery of a new field manifests the industrial potential and growing power of Turkey. “This was another important step in Turkey's energy security. The development of the gas field will benefit the Turkish people. I hope that the other exploration projects implemented in Turkey will be successful too,” Mr. Aliyev said in his congratulatory message.

Since 2010, Turkey has been conducting exploration works in various areas in the Black Sea jointly with energy giants BP, ExxonMobil, Chevron, and Petrobras. $4 billion ($500m by Turkey) were spent on the geological exploration of the Black Sea shelf of Turkey but no hydrocarbon deposits were found, hence the works were suspended for an indefinite period. Yet in 2017, Turkey decided to resume research using its own vessels. The first Turkish seismic vessel, Barbaros Hayrettin Paşa, discovered rich natural gas reserves in the Danube block within Turkish waters off the western coast of the Black Sea.

On July 20, 2020, the Turkish drilling ship Fatih began drilling operations in the Black Sea at the promising area Tuna-1 near the intersection of the Bulgarian and Romanian maritime borders with the internal waters of Turkey.

"Fatih (conqueror in Turkish) headed to the Black Sea on the anniversary of the conquest of Istanbul. The success of operation justified its name and made the Turkish people proud", Mr. Erdogan said in his address to the nation.

At the same time, Mr. Erdogan noted that the actual reserves of the new field might be significantly higher than the estimated ones. “Well data suggests a high likelihood of new gas fields in the same region. In other words, the current discovery can only be a portion of richer resources,” Mr. Erdogan said.

Turkey expects to receive the first gas from the Black Sea in 2023, but in the meantime, it is necessary to conduct additional works on casing wells, define a production concept and start construction and installation of the necessary infrastructure.

“We will actually start using the resource as soon as gas is extracted. Our objective is to start sharing the Black Sea gas with our people in 2023. Turkey is reaping the best fruits of painstaking efforts it has patiently carried out for years,” Mr. Erdogan said.

“Today we have taken a step that will save us from energy dependence on third countries. I hope we will eliminate the deficit of the balance of payments, because currently we spend considerable sums on the purchase of energy resources,” Turkish Minister of Finance and Treasury, Berat Albayrak, said.

Turkish Minister of Energy, F. Donmez, said that the state oil company TPAO would receive a license allowing it to become a sole production company operating in the Sakarya field, as the participation of other companies in the project is not considered. “We are confident that Turkey has all the potential to develop new offshore fields. Turkey has no partners in this matter,” Minister Donmez said.

According to Donmez, to transport gas to onshore facilities, it will be necessary to construct a 200km-long pipeline through the seabed of the Black Sea. “It is too early to announce the exact cost of the project. The gas price will be based on the results of engineering and design works. However, it is clear that domestic gas will be cheaper than the imported one,” Mr. Donmez said.

He added that so far only a quarter of the Tune-1 geological structure (8,000 sq.km) has been studied. In the future, there may be new discoveries in similar structures. “Their depth and extent are the same. We can have more good news in the coming two months. Drilling vessel Kanuni will remain in the Black Sea until the end of the year to complete the drilling of up to 40 wells,” Mr. Donmez said.

According to the International Energy Agency (IEA), the reserves of the new Turkish field in the Black Sea are the largest of all gas fields discovered by Norway in the North Sea since 2010. “According to the international classification, oil and gas fields are divided into certain categories. The new field in the Turkish sector of the Black Sea is classified as large. This is the largest field discovered in the world in recent years,” IEA head Fatih Birol told Anadolu.

According to Mr. Birol, the potential value of gas reserves in the Sakarya field reaches $80 billion. Turkey will be able to produce 10-15 billion cubic meters of gas from the new field annually, which will cover a third of the country's demand for natural gas. “However, the production of such a large volume of gas requires at least $6 billion in investment,” Birol said.

 

Ace in the hole

Meanwhile, a number of experts refer to the unsuccessful experience of Romania, Ukraine and Russia in the development of offshore fields in the Black Sea, and consider the statements of Turkish authorities about the new discovery and their plans for the early development of the field as speculative.

Igor Yushkov of the Finance University under the Government of the Russian Federation, for example, finds it strange that Turkey was the only lucky country that discovered a rich hydrocarbon deposit in the Black Sea. “Even if there is gas, it is important to consider the economic feasibility of developing the new field. Not all discovered deposits eventually reach the stage of commercial exploitation. Offshore production in the Black Sea is an expensive venture. What will be the cost of production? It may turn out that it is more profitable to buy gas from Russia and Azerbaijan than to produce it in the Black Sea,” Yushkov said.

According to him, it usually takes five to seven years from the start of the development till the commercial operation of the field.

"The commercial production of gas in Turkey is questionable, since at current gas prices, the new field cannot compete with either liquefied gas or even more traditional Russian, Iranian and Azerbaijani gas," said Yekaterina Kolbikova of Vygon Consulting. According to her, given the development of renewable energy sources and nuclear energy in Turkey, gas consumption will decrease, while contractual obligations until 2025 will exceed the country's demand.

Nevertheless, there is no doubt that such a powerful asset will greatly strengthen Turkey's position in negotiations with gas suppliers. Minister Albayrak believes that the price discount can be up to 30%. In addition, Turkish consumers can benefit from cheaper industrial and household prices for gas and electricity even until 2023. The new gas field will positively affect the image of a number of local companies. “In the short term, the development of this field will pave the way for an IPO for both TPAO and BOTAS, first domestically and then abroad. The growth of their balance to a level comparable to that of the world's most valuable energy companies will lead to an IPO. We will prepare the legal infrastructure,” Mr. Albayrak said.

Turkish Foreign Minister Mevlut Cavusoglu expressed the possibility of exporting discovered gas reserves to Europe. “Turkey is not the buyer of gas only. We are also a transit country. With the discovery of the Sakarya field, Turkey enters a number of huge energy sites. We will use this gas to meet our own demand, and we will be able to export the surplus to Europe,” Cavusoglu said.

According to government officials, Turkey is not going to refuse gas imports completely. On the contrary, Ankara plans to increase exports from Azerbaijan in the coming years. “Azerbaijan has already taken the first place in natural gas supplies to Turkey. In the coming years, we will increase the volume of purchases of Azerbaijani gas,” M. Cavusoglu noted.

Minister of Finance Albayrak also announced Turkey's intentions to continue cooperation in the gas sector with Russia and Iran. “Perhaps we will cooperate as a manufacturing country. Russia is a reliable supplier. Even in difficult periods for our country, Russia did not abandon us, nor did it hamper supplies,” Mr. Albayrak said.

 

Sea of ​​discord

In average, Turkey spends more than $40 billion on energy imports annually. In 2019, the country consumed 44 billion cubic meters of gas. The successful discovery in the Black Sea only whetted appetites, and now the country expects to "repeat the success" also in the Mediterranean.

“We will encourage the exploration of energy resources. Our objective is to solve all energy problems in the country. Turkey is committed to continue drilling operations as well,” President Erdogan said.

According to Minister Donmez, Turkey will continue drilling in the Mediterranean regions with hydrocarbon potential. “The exploration of natural gas has been mainly focused on the Eastern Mediterranean. We expect the discovery of new gas fields, but this will become clear after drilling operations,” Mr. Donmez said.

Thanks to NAVTEX (an international automated medium frequency direct-printing service), Turkey announced new seismic activities in the Eastern Mediterranean from 18 August to 15 September. As part of these initiatives, the drilling ship Yavuz has embarked on exploration in southwest Cyprus, accompanied by warships Ertugrul Bey, Osman Bey and Orhan Bey. NAVTEX strongly advised not to enter the seismic area.

The Turkish activity has sparked extreme discontent in neighbouring Greece, which accused Ankara of illegal and unauthorised activities. Greece claims that Turkey is conducting oil and gas exploration in waters that Athens considers its exclusive economic zone. In response, Ankara refers to the terms of the memorandum concluded with the UN-recognised Libyan Government of National Accord on the mutual recognition of maritime zones.

Greece tries to put pressure on Ankara by imposing EU sanctions on Turkey. In turn, Germany is trying to mediate between the two countries to resume negotiations and avoid further escalation of the situation in the region. On the contrary, France, as a sign of support for Greece, dispatched two fighter jets from the Cypriot base to Crete, as well as a frigate Lafayette and the helicopter carrier Tonnerre to the region.

On August 26, Greece began military exercises with France, Italy and Cyprus in the Eastern Mediterranean. The Greek Defense Ministry announced that the operation will take place south of Crete and will last for three days. On the same day, Turkish and US naval ships conducted joint exercises in the Eastern Mediterranean.

Cyprus, Egypt and Israel have traditionally supported Greece in the conflict over this offshore area in order to deliver gas from the offshore fields to Europe via the Eastern Mediterranean pipeline. It is unclear though what kind of practical support and assistance these countries can, and most importantly, want to provide to Greece in the event of a real military conflict with Turkey.

President Erdogan says that Ankara will not abandon its plans for exploration in the Mediterranean, despite the threat of sanctions. “No colonial power can deprive Turkey of the energy resources discovered in its own region,” Mr. Erdogan said, calling on Athens to dialogue.

Turkish leader underlined that Turkey does not lay claim to anyone's territory and does not violate the rights of other countries. However, Turkey will not retreat a step from its own interests.

“Modern Turkey is no longer a country that is ready for concessions. Ankara will take all steps to protect national interests in the region and is ready to pay any price for this. Turkey will take what is due to it in the Mediterranean, the Aegean and the Black seas,” president said.

Both Greek and Turkish military are on high alert these days. It is not clear whether sanctions will be imposed on Turkey. The EU has not yet developed a common position on the situation in the Eastern Mediterranean. However, as practice shows, the language of sanctions and threats is ineffective and does not always give the desired result; therefore, reaching a certain consensus on this issue is inevitable.



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